Greening China's power sector
The country has shut down domestic output but a shift to cleaner fuels will be a slow one. And its coal import needs are showing no signs of abating
Local residents no longer need to breathe its filthy fumes—but the closure of Beijing's last coal-fired power station has even greater significance for the country.
China, the world's top coal producer, consumer and importer, is sticking to a pledge to cut its use of the black stuff by 11.8m tonnes by the end of 2017, compared with 2012 levels. It spells trouble for global coal markets, where China's sheer size as a consumer is often the key price mover.
The Huaneng Beijing thermal plant is the last of four coal-fired power plants to close in the capital. Similarly to the other three plants, Huaneng Beijing will be replaced by a natural gas-powered facility.
China plans to cap its coal consumption at 4.1 gigatonnes (Gt) by 2020. Coal's share of the country's energy market should then fall to 58%. Meanwhile the share of renewables in China's power generation sector is set to rise to 15%. Natural gas' will increase to 10%.
China is the world's highest emitter of carbon dioxide, accounting for 27.3% of the global total in 2015—the year with the most recent available data. But China's carbon emissions did in fact fall that year
—by 11.6m tonnes. This is the first drop since 2000. Although a meagre improvement, the fall in carbon emissions is a signal that government policies promoting the uptake of gas and renewables are starting to work.
International Energy Agency (IEA) predicts that China will likely exceed its climate pledge, with energy related CO2 emissions peaking just before 2030.
It's still the global coal sector's juggernaut though. China accounts for about half the world's coal consumption and remains the world's biggest coal importer (a crown it reclaimed from India in 2015). It has been a net importer since 2009 and that shows no signs of abating. Imports rose by a quarter last year, to 255.5m tonnes. It's been a boon for Australia and Indonesia, China's biggest suppliers.
Still, the trend is downwards, predicts the IEA. The agency's latest World Energy Outlook reckons Chinese coal demand peaked in 2013 and will drop 13% by 2040. Coal's share of China's energy mix, around two-thirds in 2014, will be 45% in 2040.
The sheer size of China's imports means it holds much sway over the coal market. In 2015, a drop in Chinese imports weakened coal prices. But as imports surged again last July, international prices did too-doubling between January and November last year.
"When international prices are lower than domestic coal prices, they import coal and vice-versa," says Sylvie Cornot-Gandolphe, a researcher at
Oxford Institute for Energy Studies, a research institute. Some bottlenecks in the supply chain mean that China imports coal even when domestic prices are lower. For now, it remains cheaper for China to import coal, as domestic prices have stabilised at around $80 a tonne, says Cornot-Gandolphe.
Government efforts to curb domestic oversupply have had some impact-production has declined in each of the past three years
—though overcapacity is still a problem. The measures have ranged from a moratorium on new mines, to the closure of inefficient and small ones (1,000 were shut last year alone), and a reduction in working days in the mines from 330 to 276 last year.
Some of the measures are now being relaxed; efficient mines were permitted to work 330 days a year until the end of the winter this past March. "The government will continue to control production and capacity but with more flexibility," Cornot-Gandolphe says. The government will only control output when prices are volatile.
At the same time, the use of renewables is rising rapidly
—supported by the 13th Five-Year Plan, which favours the growth of wind and solar. The plan also wants more nuclear power. Several new plants have opened. Analysts say natural gas use will also rise.
Wood Mackenzie and Facts Global Energy think China will be a major contributor to a 50% rise in Asian liquefied natural gas demand by 2035.
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